Given the increase in short-term rates, plus the interest-rate-risk present in longer-duration bonds, there are several options for income these days that are considerably more attractive than they were a year ago, says George Gagliardi, a financial adviser with Coromandel Wealth Management.
What are some of those options?
ETFs that hold short-term Treasury bills (one to three months) and floating rate investment-grade bonds are good places for safety and rising yields, says Gagliardi.
Consider PowerShares Treasury Collateral Portfolio (CLTL) and Goldman Sachs TreasuryAccess 0-1 Year (GBIL) , both of which hold T-bills, yield 1.68% and 1.78%, respectively, and will likely increase with the recent Fed rate increase, he says.
Also consider iShares Floating Rate Bond (FLOT) and SPDR Bloomberg Barclays Investment Grade Floating Rate (FLRN) , which hold investment-grade floating rate bonds, currently yield 2.46% and 2.52%, respectively.
Investors panicked at recent interest-rate increases and they sold off REITs (real estate investment trusts) and MLPs (master limited partnerships), even though these higher-yielding investments have some resilience against rate increases, says Gagliardi.
"The real estate market looks solid, and the oil and gas pipeline business also has solid fundamentals these days."
Consider the iShares Core U.S. Real Estate (USRT) , which is currently yielding 5.01% and has a minuscule management fee of 0.08%.
"Oil and gas stocks, and ETFs, which are somewhat more volatile, currently sport attractive yields for those investors willing to tolerate some volatility," he says.
A commercial mortgage REIT that Gagliardi finds particularly attractive in this interest rate environment is Blackstone Mortgage Trust (BXMT) .
"They have managed to balance their borrowing and lending with near identical durations, such that interest-rate increases will have less of an impact than with other mortgage REITs that borrow short-term debt and invest in long-term debt," he says. It currently yields 7.87%.
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